As over the top viewing disrupts the way sport is consumed, are rights-owners really ready to make the ultimate leap? Ahead of the Sportel convention, Sportcal Insight spoke to some of the top players to gauge the mood of the industry.

20th October 2017, 10:22

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“We envisage anybody, really, being able to come along
and bid for those rights. We would need some distribution criteria and to make
sure it was readily available across platforms and everything else, but as long
as it was widely available and distributed properly, we wouldn’t rule those
out.” Richard Scudamore, Premier League executive chairman, speaking on the eve of the 2017-18 season.

Scudamore’s declaration that the Premier League will be “technology-neutral” when the new domestic rights tender hits the market early next year was either, to steal a cliché from the soccer transfer window, a ‘come and get me plea,’ or, more likely at this stage of the OTT journey, a clever ruse to create the illusion of a serious challenge to incumbents Sky and BT Sport.

Not that the major digital players haven’t offered encouragement.

Amazon and Facebook have already shown their cards, while
Apple and Google/YouTube are topping the media analysts’ ‘ones to watch’ lists.

Then there are the new players, the likes of DAZN, Eleven
Sports and Sportsfix operating in territories worldwide.

And not to be outdone, Eurosport, the Discovery-owned,
pan-European broadcaster, US sports networks ESPN and Turner and the UK’s Sky have
been making big strides in the over-the-top market in the last 12 months.

For that quartet – and there are many others – while the
vast majority of their revenues come from subscriptions and advertising, there
is a realisation that revenue from digital streaming services will grow
exponentially.

After conquering the music and entertainment industries,
Silicon Valley has turned its attentions to sport, initially dipping its toes then
plunging head first into the water over the past 12 months.

The Premier League's Richard Scudamore

The next big rights to hit the market will be the domestic tender for the Premier League, with an auction set to be concluded in early 2018. Sky and BT will fight hard to retain the rights that they collectively shelled out over £5 billion ($6.6 billion) for, ahead of the 2016-17 campaign.

Indeed, analysts believe the competition, or illusion of it, from these deep-pocketed tech firms could force Sky to pay a 45-per-cent premium on the £4.2 billion it spent in the current cycle to retain the lion’s share of matches.

Thomas Singlehurst, an analyst at investment bank Citi, predicts: “The base case consensus [of Sky analysts] is that payments go up by £600 million a year from the 2019-20 season.”

However, the
chances of a major package of Premier League matches going to a digital player
in the UK at present remains unlikely, as Singlehurst notes: “They are
incredibly expensive and UK only. As a standalone offer they would be a loss
leader for Sky or BT, but they are able to cross-subsidise to make it work with
broadband, TV, landline and mobile. None of these new competitors can
cross-subsidise to the same level to make it work, even Amazon. And
they tend to prefer global content deals to make it work across a much bigger
base.”

Marc Watson, the executive chairman of international
pay-TV broadcaster Eleven Sports, and a former executive at BT Sport, believes
the Premier League remains some way off for these digital players.

" The Premier League is a big chunk of someone’s profit margin if you want to buy all of that out and I don’t see that happening any time in the short term but in the long term, who knows? "

Marc Watson, executive chairman, Eleven Sports

He told Sportcal Insight Online recently: “The Premier
League is a big chunk of someone’s profit margin if you want to buy all of that
out and I don’t see that happening any time in the short term but in the long
term, who knows?

“Nobody’s made a big move yet and I’m not sure whether
they will or not. My guess is that what’s important to them is that their
customers have access to content, and if they have that on a reasonable basis
then I’m not sure whether they’ll feel obliged to spend billions on premium
live sports content.”

In USA, however, they’ve not had the chance to flex their
muscles, with domestic major league rights locked up until the early part of
the next decade.

This is giving some digital players more time to build a
strong sports offering.

Speaking to leading sports properties at the 2017 Global
Sports Summit in Aspen, Colorado, Rich Greenfield, managing director, media and
technology analyst at New York-based BTIG, said moves by Amazon and Apple
to “change the definition of a media bundle” will present major challenges to
the established linear sports broadcasters in USA.

“We
always think about the cable bundle, in with your phone and broadband. But the
bundle is changing. With Amazon Prime, you get free shipping, prime video and
catalogue music. There will be more Amazon Prime subscribers in USA in 2021
when they bid for [NFL] Monday Night Football than there will be ESPN
subscribers. It won’t even be close.

“Apple is building a new bundle as well, video content in
with Apple music. They’re trying to build a bundle of services that add value
to the consumer, so I don’t think it’s crazy to believe that either of these
two companies could be an aggressive bidder for MNF or other big sports rights
over the course of next few years.

“Each of them is in a really strong position to use
sports as a battering ram to have a much larger subscriber base.”

It is a sentiment shared by Lee Berke, a US sports media
consultant, who runs HB Sports, Entertainment & Media.

“Nobody is saying here in the States, from an ESPN, Turner
or CBS standpoint, ‘we are going to place everything over the top’. However, I
think they are going to reach that stage in the next three to five years if
pay-TV subscriber numbers continue to shrink as they have been,” Berke tells
Sportcal Insight,

“Apple, Amazon, Twitter, and Google/YouTube, these are all
players for major sports properties that become available in 2021, 2022, 2023.”

North American Major League
rights deals in USA

League

Broadcasters

Expiration of deal

Value

NFL

CBS, NBC and Fox

ESPN (Monday night football)

2022

2021

$28bn over 9 yrs

$15.2bn over 8 yrs

MLB

Fox, Turner and ESPN

2021

$12.4bn over 8 yrs

NBA

ESPN and Turner

2025

$24bn over 9 yrs

NHL

NBC

2020

$2bn over 10 yrs

MLS

ESPN, Fox and Univision Deportes

2022

$720m over 8 yrs

Source: Sportcal research

Oli Slipper, the former joint chief executive of digital
sports content and media group Perform, which has its own OTT offering in the
shape of DAZN, tells Sportcal Insight: “I don’t think you’ll see a global bid
or a pan-European bid for the Premier League because it will not want all the
eggs in one basket.

“But in the US, you will see some of the bigger players
take on the existing pay-TV operators for sure. The long-term rights deals in
USA have been very good for the likes of ESPN, Fox, CBS and NBC in terms of
keeping them out. Over the next five years, these new companies have the chance
to really build up their media strategies.

“I think it could open the floodgates in terms of a
mega-funded player. Nothing will hold it back.”

Twitter’s decision to pay $10 million to live stream 10 NFL
Thursday night matches for free globally in 2016 raised eyebrows. It was a
significant enough outlay, considering the games were still aired in USA on CBS
and NBC.

The rewards, for Twitter, were eyeballs - it attracted an
average of 3.5 million unique viewers for its Thursday games.

Fast forward 12 months, and those same rights – 10
non-exclusive matches - are now held by Amazon, the retail giant but at a price
of $50 million (it is charging advertisers $2.8 million a package, with matches
available to members of its $99-a-year subscription service, Amazon Prime
Video).

Twitter, Facebook and the YouTube all bid big sums for
the package.

Greenfield calls it a “seminal moment” for the OTT
market, a sign that the “new boys” are willing to pay big to take on the status
quo.

He says: “These digital players are starting to realise
that, in sport, you can have massive penetration of business simply by putting
up money. And their balance sheets are huge. These would essentially be pimple
investments if they want to be in this space.

New England Patriots owner Robert Kraft: 'The future is OTT'

Robert Kraft, owner of the reigning Super Bowl champions
New England Patriots, is in no doubt that for the NFL, “the future is OTT.”

Speaking at the Cannes Lions festival in June, Kraft
said: “We’ll be very interested to see how Amazon goes as it’s behind the
paywall. The thing we have to be careful of is millennials. They don’t watch
TV, they don’t have TVs or subscribe to cable. So we have to bring that
audience in. … over-the-top is a great opportunity.”

Amazon hasn’t stopped there. It will become the exclusive broadcaster of men’s tennis’ ATP Tour in the UK from 2019, replacing Sky in what represents its biggest sports content deal outside USA (paying around £10 million a year), while it is said to be planning audacious swoops for two of the biggest sports properties in Oceania – Australian Rules football’s AFL and matches of the All Blacks, the New Zealand national rugby union team.

Amazon also bid
unsuccessfully for Uefa Champions League rights in Japan (it lost out to DAZN)
and took an early interest in the next cycle of Twenty20 cricket’s Indian
Premier League, buying the invitation to tender documents, but like ESPN Digital,
Twitter and Yahoo it did not subsequently make offers for rights, which were
awarded in early September.

Facebook did, however, bid. In fact it offered the most
money, Rs39 billion ($608 million), for the digital rights package in India for
the next five years, only to lose out as global IPL rights went to
broadcasting giant Star India for an incredible Rs163.5 billion.

It was the first tangible evidence of Facebook making a
pitch for exclusive rights. Much of its work in the area to date has been to partner
with existing rights-holders, in doing so streaming games from MLB, Major
League Soccer and Mexican soccer’s top-tier LigaMX across USA.

It recently agreed a deal to show coverage in USA of
European soccer’s Uefa Champions League in a partnership with rights-holder
Fox.

Facebook says its sports model to date has been
about “engaging community experiences.”

It is a similar
approach adopted by Twitter, which has been offering complementary services to
rights-owners since its NFL experiment. It still works with the NFL,
showing breaking news, analysis and video highlights, plus a 30-minute live
show five a days a week during the season.

It also streams out of market MLB and NHL games, and in August struck a live streaming deal with US stock car racing’s Nascar, with an in-car camera in place for all 10 Monster Energy Nascar Cup Series Playoff races. The main action was broadcast live and in full on NBC Sports Network, the national broadcaster's cable offering.

This year's US PGA Championship was live-streamed on Twitter and Facebook in various markets

This year’s US
PGA Championship, one of golf’s four majors, was live-streamed on Twitter and
Facebook in various territories. In the UK, organisers decided against renewing
a deal with Sky, the dominant golf broadcaster, saying they wanted a partner
involving “all platforms.”

While there was a live stream on the Facebook page of Give Me Sport, the UK-based youth-focused platform, and by Twitter's coverage of “marquee groups,” a deal was surprisingly penned with the BBC, the public-service broadcaster.

It was a sure sign that the market was not quite ready for a major property to go 'all in' in a key market. For the PGA of America, its tournament got more than two million viewers on the BBC. Linear, it seems, isn’t dead yet.

Greenfield does not see Twitter as a major acquirer of
rights, but believes it will thrive as sports go-to second screen.

He explains: “Twitter doesn’t have the subscriber
numbers, but it hits 100 million people worldwide on a daily basis. Everyone in
the sports business should be thinking about a Twitter as a mobile-first
destination for content. It’s like sports radio. It’s about conversation and
engagement.”

One player that the traditional broadcasters need not
worry about is Netflix, after chief executive Reed Hastings categorically stated
that the platform is not getting into live sports.

He told this year’s media and technology Code Conference
that sports is “really good in the moment” but the “afterlife of a given show
is quite small.” In short, you cannot binge watch a sporting event.

He continues: “It’s hard to transform sports with the
internet. I mean, you can carry it over the internet, but what does that do for
you? So think of it as the internet doesn’t yet add much value to the sports
experience.”

Alex Kaplan, executive vice president, commercial at
Eurosport Digital, is in agreement. Indeed he believes that the unique elements
of sport – the live viewing experience – will keep linear on top for now.

" If a consumer watches soccer matches, they inevitably want to do so when it is on the best possible screen "

Alex Kaplan, EVP, commercial, Eurosport Digital

He tells Sportcal Insight: “One reason Netflix has been
so successful is that non-live content really works well in OTT. It’s binge
viewing. But from a sports perspective, that is less relevant. Yes there’s data
and stats that can be built in to a second screen experience, but if a consumer
watches soccer matches, they inevitably want to do so when it is on the best
possible screen.”

The US broadcasters are reacting, however.

Turner used the official 17 August announcement of its
acquisition of Champions League and Europa League rights from 2018-19 (the deal
with the Team Marketing agency was actually signed off in February) to reveal
its intention to launch a stand-alone sports streaming service that will
broadcast the vast majority of the 340 games annually.

Turner’s Champions League coverage will include four live
TV broadcasts each week throughout the group stage of the competition, followed
by two games per week during the knockout phase. The semi-finals and final as
well as the Europa League final will be nationally televised on the TBS or TNT
channels.

All other matches and Europa League games will only be
available to watch live on the OTT service to paying fans.

Turner president David Levy said at the time: “As a
company, we are committed to ensuring that the current ecosystem remains
healthy, but we are also prepared for what’s next.

“We went into this specifically thinking about an OTT
product. There was just kind of an overall company strategy to innovate beyond
the traditional television ecosystem.”

Turner is, of course, not alone in USA.

A week earlier ESPN’s owner, entertainment giant Walt
Disney, ramped up its plans to offer OTT services to consumers by acquiring
a majority stake in BAMTech, the live streaming technology company.

Having acquired a 33-per-cent shareholding in BAMTech last year for $1
billion, Disney agreed to pay $1.58 billion to secure an additional 42-per-cent
stake in the company born out of MLB Advanced Media.

Bob Iger, Disney’s chief executive, said: “This
acquisition and the launch of our direct-to-consumer services mark an entirely
new growth strategy for the company, one that takes advantage of the incredible
opportunity that changing technology provides us to leverage the strength of
our great brands.”

ESPN plans to stream Grand Slam tennis

ESPN’s planned OTT streaming service will feature more
than 10,000 events in its first year, including MLB and NHL games and Grand
Slam tennis. But it will not include NFL or NBA contests that are the big
ratings drivers for ESPN’s cable channels.

So linear remains the driving force, at least for now,
according to Berke.

“Nobody in major sports is saying ‘I’m exclusively
offering up my content only on OTT’. It hasn’t reached that level of maturity,
that level of popularity yet,” he cautions. “But you’ll reach that point where
people will say all platforms are equal, we want to be on all of them
simultaneously, and that point I think happens around the time when all these
big contracts become available.

“The priority is still where you are getting the most
money from. And they’re continuing to get the most money from linear, whether
that’s broadcast, cable or satellite. They’ll still look to maintain those for
as long as you possibly can.”

However, it seems that for both rights-owners and
rights-holders, a combination of linear and OTT is quickly becoming the go to
model.

DAZN chief executive James Rushton tells Sportcal Insight:
“Will major rights holders cut ties with traditional broadcasters completely?
Probably not. Will there be a time where sport is only shown on OTT
services? I highly doubt it. But, that’s the beauty of OTT; it’s
complementary as well as competitive.”

DAZN operates in Germany, Switzerland, Austria, Canada
and Japan, and Rushton says more markets are likely to come on board next year,
with the location “depending on the environment. That includes the rights on
offer, how connected a country is, how much they already use OTT services and
what the pay-TV penetration is like.”

In the German-speaking countries, DAZN holds exclusive
Premier League rights, while the Japan business launched with a 10-year deal
with domestic soccer’s J.League said to be worth Y210 billion ($1.91 billion),
to be supplemented with Champions League coverage in the country next season.

On the reasons for the booming success of OTT, Rushton replies:
“It’s not about taking sport away from the TV… it’s ultimately about giving
fans the choice and watching sport on their terms, where and when they want to.

“And it’s not just about flexibility and accessibility
either; OTT services are more affordable. Fans are fed up at the price of
watching sport, especially when there are cheaper alternatives to be found
online and they don’t want to be charged an extortionate amount of money to
watch them.

“Lastly it’s about content, and lots of it. OTT services
don’t have the same restrictions as linear TV.”

In Germany, Eurosport had championed its acquisition of exclusive
Friday night Bundesliga rights as a major win for Player, its OTT offering.

Yet before the season started, an agreement was signed
with HD+, a subsidiary of satellite operator SES, to televise the games. In
addition, talks continue with cable operators to get the games out on their
platforms, while a carriage agreement with Sky is not out of the question if
financial terms can be reached.

Simply put, the market was not quite ready for pure OTT
only for such a major property as Bundesliga.

And technical problems in the first few weeks of the
season - DAZN’s initial NFL coverage in Canada and Premier League streaming in
the German-speaking countries suffered similar teething issues – will hardly
fill the market with confidence.

Thursday Night Football is now streamed to subscribers of Amazon Prime

But a major exclusive OTT deal is inevitable, according
to Kaplan.

“We have seen bigger properties out there that have been
playing on the margins, but offering non-exclusive rights. Those leagues and
properties are interested in monetising their rights, but also making sure that
as many fans as possible have access,” he says.

“I’m quite confident, whether that’s next year or several
years down the road, that if they feel the money is there, and those platforms
are at a point where they won’t be keeping viewers away from seeing their
content then it’s only a matter of time.”

If and when that does happen, particularly with one of
the major North American leagues, well that, for Greenfield, spells doomsday
scenario for linear TV.

“If you want to disrupt television the single best way to do
it is to buy all the big sports. If you do that TV shatters, there is nothing
left. If Apple buys Sunday night baseball rights from ESPN in 2021, if somebody
buys Monday Night Football, if any of these tech giants want to literally bring
linear television to its knees, then taking sports away is the way to do it.
That will make TV bleed fast. It is the only thing keeping it together.

“If Apple goes at sports, for example, and turns Apple Music
into a bundle that including sports, I think TV is done. The mass TV break
point is in the early part of the next decade when all of these sports become
available.”